DeepSeek, an AI-powered chatbot developed by a Chinese tech startup, has become the most downloaded free app on Apple’s App Store just weeks after its launch in January in the US.

Its sudden rise in popularity and competitive pricing compared to US-based AI companies have sparked global interest and debates within the financial and tech sectors. Venture capitalist Marc Andreessen described DeepSeek R1 as “AI’s Sputnik moment” in a post on the platform X (formerly Twitter) on Sunday, further fueling the buzz.

The company claims that its AI models rival the best in the US, such as ChatGPT, but are developed at a fraction of the cost.

While US companies reportedly spend billions on AI development, DeepSeek’s researchers say they achieved comparable results with just $6 million. This stark cost disparity has drawn attention from experts and industry watchers.

So, what exactly is DeepSeek R1, and why has it taken the AI industry by storm? Let’s dive deeper into what it is and why everyone’s talking about it.

What is DeepSeek?

Founded in 2023 in Hangzhou, China, DeepSeek is an AI startup. Its CEO, Liang Wenfeng, is also the co-founder of High-Flyer, one of China’s top hedge funds specialising in AI-driven quantitative trading.

DeepSeek’s AI assistant topped the free app charts on Apple’s iPhone store, a feat attributed to its innovative design and appeal as a competitive alternative to ChatGPT.

The success of DeepSeek has raised eyebrows in the US tech community, with US President Donald Trump calling it a ‘wake-up call’. 

How did DeepSeek achieve this milestone?

By 2022, High-Flyer, the fund led by Wenfeng, had reportedly acquired a substantial cluster of 10,000 Nvidia A100 graphics processor chips that are used to build and run AI systems, according to a post that summer on Chinese social media platform WeChat. The U.S. soon after restricted sales of those chips to China.

However, DeepSeek said its recent models were built with Nvidia’s lower-performing H800 chips, which are not banned in China, sending a message that the fanciest hardware might not be needed for cutting-edge AI research.

Nvidia shares drop

The stock market’s response was immediate, with Nvidia, a major supplier of AI-related hardware, experiencing a 17% drop in its share value. Despite the decline, Nvidia acknowledged DeepSeek’s progress, calling it “an excellent AI advancement” achieved with widely available hardware compliant with export restrictions.

Wall street’s reaction

Financial analysts described Wall Street’s reaction as “overblown,” with some pointing to misconceptions about DeepSeek’s technological capabilities. Stacy Rasgon, a semiconductor industry analyst at Bernstein, said, "The models they built are fantastic, but they aren't miracles either. They’re not using any innovations that are unknown or secret or anything like that, these are things that everybody’s experimenting with."

Implications for US AI Investment

DeepSeek’s progress on AI without the same amount of spending could possibly undermine the potentially $500 billion AI investment by OpenAI, Oracle and SoftBank that Trump touted at the White House.

One thing that distinguishes DeepSeek from competitors such as OpenAI is that its models are “open source”—meaning key components are free for anyone to access and modify, though the company hasn’t disclosed the data it used for training.